Overdrive

Ramping up its export juggernaut and taking full advantage of WTO entry, China’s economy in the first decade of the new millennium was “boom with no bust.” The information revolution fed more growth, as hundreds of millions of Chinese came online. But the Internet also became a forum for discontent, and the new leadership team of Hu Jintao and Wen Jiabao acknowledged growing environmental and social justice concerns with their call for a more harmonious society. Then, as the credit crisis in the US spread into a global economic crisis, China’s export-dependent growth appeared in jeopardy, and fears of a Chinese crash surfaced. But, as in 1998, China weathered the storm, and emerged in 2010 as the world’s largest exporter, largest foreign creditor, and fastest growing major economy, poised to soon surpass Japan and eventually eclipse the United States as the biggest economy on the planet.

China Has a Big Employment Problem

Period:
Overdrive (2000s) | Global Economic Crisis

China Has a Big Employment Problem

China's Reserves are Worthless Because They Can't Use Them

No Dispensation from The Laws of Economics

Thomas Rawski

Professor of Economics and History

Thomas Rawski is a professor of Economics and History at the University of Pittsburgh. He has written extensively on the economy of China. After completing his doctorate in Economics at Harvard University, Rawski participated in diplomatic tours of China as a member of a delegation dedicated to the study of rural industry and, as such, regularly visited China throughout the 1970s and the 1980s. He joined the University of Pittsburgh's faculty in 1985 after fourteen years at the University of Toronto. His research focuses on the nature and implications of recent developments and long term changes in the economy of China.

I think it's too early to tell, but the main effect is very clearly going to be a slowdown in export demand, and this is something over which they have no control. And it's going to be difficult, because they relied on export demand quite substantially, not just to obtain foreign exchange and exchange for the imports, but to create employment. The big weakness of the Chinese economy, as I see it, is the investment system, which channels resources through the state banks to the state sector, which invests in projects which are often not very well-planned, but rarely create employment. And China has a big employment problem. Employment growth has been slow in the last 15 years, and slow employment growth just ratchets up a whole range of social tensions in China. And so, now what's happening is that the exports have dropped, demand has shifted from the market sector to the state sector, the government stimulus goes to the state banks and to state projects, which don't create very much employment, so employment creation per dollar of GDP growth is going to be low, and now you have these problems at every level. People graduating from schools are looking for employment and not finding employment, and this creates a lot of difficulties for the government at every level. And I think, for example, the race riots in Xinjiang this year, in 2009, who goes out looking for people to kill? I suspect that there's a very strong correlation between no fixed employment; people with steady employment, I think, are less likely in any society to participate in these sorts of activities, so it's not just employment, it's not just income distribution, but going beyond that to all kinds of social tensions that these labor market difficulties are linked to.